II. Latin American structuralism

In the mid-1950s in Latin America, mainly through ECLAC, authors such as Raúl Presbich, Celso Furtado, Anibal Pinto and Osvaldo Sunkel conducted studies to understand the economic problems of Latin American countries.3 A common point in these reviews was criticism of the neoclassical theory of international trade, based on comparative advantages, which holds that the outcome of technical progress is shared among countries.

As argued by the aforementioned authors, the reality showed a different picture, with a clear advantage for industrialized countries (the centre) compared to countries that exported primary goods (the periphery). According to the concept of deterioration of terms of trade, part of the technical progress of the second group of countries was transferred to the first. In the words of Prebisch and Cabañas (1949), “while the centers fully preserved the outcome of the technical progress of their industry, the peripheral countries transferred to them a part of the outcome of their own technical progress”. Heterogeneity between productive structures is one of the explanations for this asymmetry in relation to gains resulting from international trade, as well as in relation to the level of development of these two groups of countries.

According to structuralists, that structure was more homogeneous and diversified in developed countries, while in peripheral countries it tended to be heterogeneous and specialized, in general, with a modern sector that exported one or a few natural commodities (Prebisch and Cabañas, 1949; Pinto, 1965 and 1970; Cimoli and Porcile, 2013).

Prebisch and Cabañas (1949) identified the biggest problem in the periphery as heterogeneity in the levels of sectoral productivity. Production specialization tended to generate recurring pressures on the balance of payments. The solution lay in the development of industry as a way to capture the outcome of technical progress and improve the population’s standard of living (Prebisch and Cabañas, 1949; Furtado, 1961; Rodríguez and others, 1995; Rodríguez, 2009).

For Furtado (1961), the key factor for the development of capitalism was technological progress, which occurs through the incorporation and dissemination of new techniques, the result of which is to increase production and productivity. In developed countries, higher real wages led the economic system to develop technological innovations aimed at replacing labour with capital. Thus, the “technical progress of the developed economies has resulted in a gradual increase in the amount of capital per unit of labor and in a relative homogenization of capital density in the various productive activities” (Rodríguez, 2009).

However, there were structural problems in the industrialization process in Latin American countries. Among them were the following: (i) a low capital-to-worker ratio, the cause of low labour productivity; (ii) the absence of a sector producing capital goods; and (iii) little diversified (specialized) production, which, instead, focused on goods with low technological content (Furtado, 1961).

Thus, opportunities for autonomous industrialization in the periphery are limited. Domestic production is concentrated almost exclusively on the production of consumer goods and/or simpler products. Industrial producers tend to absorb only technological innovations that provide the best productive capacity domestically (Furtado, 1969).

The result is that peripheral economies have developed activities with a reduced level of technical progress, which limits the development of higher degrees of intersectoral complementarity and the vertical integration of production. The “initial specialization and the pattern of industrialization generated on this basis bring with it a slower pace of technical progress in the periphery” (Rodríguez, 2009).

For Furtado (1961), industry in the periphery tends to reproduce the external productive pattern, while developed countries internalize and disseminate new technologies, develop the capital goods industrial sector and spread technology to all economic sectors. The periphery remains dependent on imported technology, as it is unable to generate an endogenous technological development process.

On the one hand, a productive arrangement on the periphery leads to the adoption of imported technology that is not suited to the structural standards of society. On the other, it generates a low-growth dynamic in which it is impossible to minimize external account imbalances (Furtado, 1961). The pressures on the balance of payments become recurrent, given that the modernization of domestic industry occurs through the adoption and updating of standards and techniques systematically acquired from developed countries (Furtado, 1961; Albuquerque, 2007).

An attempt by peripheral countries to break with this cycle of dependency and low growth gave rise to the so-called “import substitution industrialization (ISI)” model, or, according to the definition of Bértola and Ocampo (2012), the model of “state-driven industrialization”.4 The essential part of this strategy was the diagnosis of the need to reduce external dependence through the domestic production of manufactured products. The State was given a fundamental role in this process.

The actions and programmes undertaken in Latin America throughout this period and as part of this diagnosis are well known. Although with some lack of consensus, the results are also well known. According to some authors, the result of this development strategy can be considered as late and backwards in relation to Europe, reflecting a series of cyclical determinants and the dynamics of capital accumulation (Tavares, 1972).

However, even after a long effort to bolster industrialization, the centre-periphery relationship has not been overcome. Technological dependence and productive heterogeneity remain a characteristic of peripheral economies. Furthermore, in addition to these bottlenecks, short-term macroeconomic problems linked to fiscal balance and inflationary stabilization have been added. The next phase of the ECLAC school sought to address some of these problems in its analysis.

1. Neostructuralism

By the end of the 1970s, the legacy of the Latin American ISI model and the success of Asian industrialization based on a strategy of import substitution with export-led growth had contributed to the decline of the traditional ECLAC model. Policies based on the Washington Consensus occupied the economic agenda during the 1990s. However, the adoption of neoliberal recommendations resulted in a series of social and political problems, which enabled a theoretical reorganization based on neo-structuralism.5

The neostructuralist approach has advanced in relation to the old ISI model (ECLAC, 1990). Despite rescuing elements of the old structuralism, this new phase of Latin American structuralist thinking incorporates new strategies for conducting economic policy, proposing an economic model based on the idea of systemic competitiveness.

This economic model is sustained by State-managed competition, the construction of productive structures, the defence of fiscal balance, and macroeconomic stability and trade liberalization (Ffrench-Davis, 1988; ECLAC, 1990 and 1998; Ramos and Sunkel, 1993; Gwynne and Kay, 2000). The new formula stems from the finding that Latin American countries have bottlenecks associated with macroeconomic imbalances, obsolete industrial plants and technological backwardness (ECLAC, 1990 and 1998; Rodríguez, 2009; Missio and Jayme, 2012).

4 Bértola and Ocampo (2012, p. 151) argue that state-driven industrialization is a more precise concept because it highlights two defining characteristics: the growing focus on industrialization as a pillar of development and the significant expansion of the State’s spheres of action in economic and social life.

5 For a systematic approach, see Bielschowsky (2010) and Ffrench-Davis and Torres (2021), among others.

According to Missio and Jayme (2012), under that approach, the State and the market are considered partners and the objective is to create the conditions for productive competitiveness and equity. In the 1980s, after the crisis at the beginning of the decade, the State had prioritized servicing the external debt, but the new proposal prioritized stimulating the development of the capacities required to incorporate technical progress and to minimize inequalities (ECLAC, 1990, 1998 and 2018).

To meet the proposed objectives, macroeconomic balance, supported by fiscal balance and countercyclical policies, is a sine qua non condition for development (Ffrench-Davis, 1988; Missio and Jayme, 2012). Fiscal consolidation must be compatible with the ability to deal with economic fluctuations of internal or external origin (ECLAC, 1998 and 2018).

According to Titelman and Pérez Caldentey (2015), cyclical trends in Latin America and the Caribbean are asymmetrical in duration and breadth. In this sense, to minimize the sharp fall in investment and negative effects on the pace of productivity and therefore on the long-term growth rate, macroeconomic policies need to strengthen countries’ capacity to mitigate the effects of recessions on the productive structure.

In other words, fiscal balance and macroeconomic stability are essential for the State to be able to make the necessary investments in infrastructure, health and education and to control inflation, although the fundamental countercyclical function of fiscal and monetary policies cannot be neglected (Missio, Jayme and Oreiro, 2015). Thus, it becomes possible, in the long run, to reduce social inequality and to encourage the productive transformation necessary for economic development (ECLAC, 1990).

Finally, integration with international markets is another key element in this approach. Greater economic openness would enable access to the new technology trends incorporated in goods and services and would expand access to foreign investment (Missio and Jayme, 2012). As Rodríguez (2009) argues, neostructuralism recognizes the existence of a technological revolution in full swing, which itself is accompanied by an intense process of globalization. For neostructuralists, any long-term development strategy must consider both productive coordination policies and technological progress.

Specifically, from the standpoint of the generation and dissemination of technology, Fajnzylber (1983 and 1990) argues that the bottleneck for technical progress and productivity stems from the absence of an “endogenous core of technological dynamism”, without which it is impossible to overcome underdevelopment. Policies to encourage the capital goods sector should be promoted, since that sector is capable of endogenizing and disseminating technological progress to other sectors.

However, despite the more precise diagnosis of the productive transformations necessary for development, the feasibility of the neo-structuralist agenda can be questioned in the light of two factors:

(i) the deindustrialization movement underway in both developed and developing countries; and (ii) the emergence of new dynamic sectors. In relation to the last point, the emergence of the service sector is worth mentioning.

A series of productive changes is currently under way in the composition of employment and in intersectoral relationships. These transformations are broader and faster-paced than in past decades. Structuralist thinking did not sufficiently incorporate this new context into its discussions. As we will show below, these new themes have been widely discussed in the literature. Furthermore, we argue that an understanding of these new processes that induce structural change is vital for understanding the new paths that are opening up for development. That understanding is also essential for making sense of the new stage of the centre-periphery relationship that is outlined.